In theory you only sell your business once, so you’ve got one chance to get it right. You don’t want to regret selling your business for less than it’s worth due to poor preparation. Never forget, that having all the selling tools in place also facilitates a position of strength during the negotiation process.
Planning the Sale of your Business
Ideally, you will begin to prepare your business for sale well before you put it on the market. If you are looking to grow and position the company this generally takes around 1 to 2 years dependent upon the condition of the company and it’s markets. The longer that you have a creditable and documented history, the better your forecast will sound to a potential buyer. You want to ensure your business is represented at its best and show prospective buyers the benefits of buying your business. It could be as simple as making sure your shop floor is clean, painted and presentable or getting your audited financial statements ready.
Make Yourself Dispensable
Make it easy for a buyer to step into your role. If you have all the knowledge and skills to run the business, the buyer’s greatest fear is that the business will walk out the door when you do.
Document the policies and procedures that exist as unwritten rules. It is advisable to systemize the various functions of your business and create a procedures manual. Any buyer will then be able to operate the business without the need to rely on you.
Each employee should have a documented clearly defined role, and a designated set of tasks and procedures which leads to measurable and desired outcomes.
It also helps to document the relationships which are key to your business. Convert any verbal agreements with suppliers and clients into written agreements wherever possible. Written agreements will make your business look stronger and build confidence in potential buyers. Have all Agreements bound together. Examine existing contracts with suppliers and customers to ensure they will not expire or require renegotiation just as a new owner steps in. Build a file containing potential liabilities from any Agreements.
Deposit sales data into a Sales Force Automation (SFA) system, which no only contains all sales data it will enhance the value of the company by making potential buyers feel there is substance behind the data.
You will improve the perception of value to the buyer and may increase the price you can ask for your business once you have the business ready for sale. Here are some typical areas that need to be addressed:
– Inventory: try to sell all obsolete or slow moving stock items. This will improve both your sales figures, and eliminate disputes about the value of inventory during the sale.
– Plant and equipment: sell any redundant or obsolete plant and equipment, machinery, spare parts, and scrap that are no longer required.
– Business premises: look at your premises with the eyes of a potential buyer. Clean up, maintain, and paint the premises where necessary. Ensure the premises comply with all regulatory requirements.
– Commercial premises leases: Review business premises leases and ensure the lease does not expire or require renegotiation during the time when you plan to sell the business.
– Employees: Retaining key employees after transition to the new owner may be important for a successful sale, so determine which employees are critical and need to stay with the business and consider contracts where appropriate.
– A single source for all corporate policies and procedures should be kept unto date and available for any potential buyer.
Ensure your financial records are up to date to clearly demonstrate the true profitability of your business to a potential buyer.
Debtors: collect payments that are overdue from your clients. Potential buyers may be discouraged about buying a business with clients who take a long time to pay their accounts.
Creditors: ensure you are not late with payments to your suppliers. This will create a positive impression of the financial strength of your business.
Produce monthly Financial reports: to demonstrate to your buyer your ability to monitor and manage the performance of your business.
Prepare audited financial statements so the potential buyer is confident of the financial performance and value of the business.
Prepare A Buyer’s Information Pack
Buyers will be working through their own due diligence process and will want to know exactly what they are getting for the purchase price. It’s a good idea to prepare information packs for genuine potential buyers.
When selling a business, obtain professional, financial and legal advice to prepare the required information and documentation and to ensure you comply with the requirements for a valid sale.
Thanks for reading. I hope you found the article interesting. I’d really welcome your feedback on this article or let me know if there is a new topic that you would like to discuss.
To Greater Success,
Founder & CEO